Bradford & Bingley: The men standing way too close to the credit bomb

The demise of Bradford & Bingley places the spotlight on its executives and
the roles they played as events unfolded.

By Peter Taylor

9:52PM BST 28 Sep 2008

Steven Crawshaw

Bradford & Bingley

Position: Chief executive

Pay: £1.1m

The chief architect of Bradford & Bingley’s fatal business model, Steven Crawshaw, is by extension the chief architect of the bank’s demise.

It was he who masterminded B&B’s focus on two specialist – and, with the benefit of hindsight, highly precarious – segments of the mortgage market. His was the decision to abandon his predecessor’s strategy of building a diversified financial services group.

It seemed like a good idea at the time. When Mr Crawshaw replaced Christopher Rodrigues as chief executive in 2004, the buy-to-let market, with its allure of supercharged profit margins, was moving into top gear.

In the self-certification mortgage market, there were undoubtedly questions about the risk profile of borrowers, typically self-employed and with no proof of a reliable income stream. But with the value of the underlying assets exploding, what did B&B have to lose? The fact that property prices, relative to median incomes, were hitting levels dramatically out of step with historical averages evidently sounded no alarm.

Despite assurances to the contrary when he took B&B’s helm, Mr Crawshaw moved swiftly to sell off its property services unit and network of financial advisers, not to mention the businesses that at least gave it exposure to the more resilient owner-occupier market – its estate agency and mortgage broking divisions.

This positioned the bank perfectly to be swept up in the hurricane of plummeting property prices, while its back-office business model also came unstuck courtesy of its reliance on wholesale funding markets – albeit not to the same extremes as now nationalised counterpart Northern Rock.

As Mr Crawshaw said in May, when he infamously launched a £300m rights issue (later to become £400m) weeks after denying the bank had any such plans: “We were standing pretty close when the bomb went off.”

The 47-year-old avoided the inglorious honour of going down with the ship only by the misfortune of suffering acute angina, prompting him to stand down in June.

Mr Crawshaw, who began his career as a litigation solicitor before taking an MBA and then working for Cheltenham & Gloucester and Lloyds TSB, joined B&B in 1999 to oversee its flotation. History, it seems, will remember the man who brought B&B to market as the man most responsible for seeing it back off.

He joined the board in 2002 and was put in charge of lending a year later. When he settled into the chief executive’s chair, he won over staff by moving his family to West Yorkshire and taking the business back to its Yorkshire roots.

With the curtain closing on B&B as a public company, it seems unlikely that the goodwill remains.

Rod Kent

Position: Chairman

Pay: £265,000

Should Bradford & Bingley be put out to pasture, there will be a silver lining for Roderick Kent.

The existing board will – if the Northern Rock narrative serves as an example – exit stage left when the bank is safely tucked into the Treasury’s hands.

That means the chairman will have untold extra time to indulge his great hobby, tending his herd of cows and riding horses at his Berkshire farm. His passion for the quiet life of the land is a curious one, juxtaposed against his reputation as something of a luminary in the hectic world of the City.

That said, it is difficult to see that reputation escaping the demise of B&B unscathed: investors for months have been questioning why non-executives backed management’s push into the buy-to-let and self-certification mortgage market.

Mr Kent forged his name at the helm of Close Brothers. He joined the blue-blooded British investment bank in 1974, four years before leading a management buyout of the group that he embarked upon by remortgaging his home. He stepped down as chief executive of Close Brothers in 2002, staying with the bank as a non-executive director and joining B&B as non-executive chairman.

If it’s the quiet life he craved, this year was its undoing. After chief executive Steven Crawshaw resigned ill in June, Mr Kent took on executive responsibilities for almost three months, presiding over two dramatic re-workings of what was ultimately a £400m rights issue. On Friday’s closing price of 20p a share, the entire B&B business was worth £110m less than that sum.

Fronting the bank’s annual meeting in Bradford earlier this year, Mr Kent told shareholders that he was “deeply regretful and indeed sorry” for following its peers “like lemmings” into the market for complex credit derivatives.

He’s yet to conjure a noun, at least publicly, to describe what has since amounted to a near eradication of the group’s market value.

Mr Willford, 45, was at least on the money when, after revealing that B&B had grown its mortgage book by 27pc last year, he warned that “it won’t be anything like that in 2008”.

No year in B&B’s history - dating back to 1851 - has been like 2008, and certainly none since 2004, when Mr Willford joined the board after working with Abbey, Barclays and British Airways.

Two years in, with the bank riding high on the bloated property market, he was doubtlessly beaming as his boss, chief executive Steven Crawshaw, unveiled what he described as “the best set of numbers this organisation has produced since flotation five years ago”.

Mr Willford could never have imagined then the professional joys that would be served up just two years later: negotiations with private equity firm Texas Pacific Group for a cash injection to save the bank, only to have it flee at the 11th hour; a rights issue twice revised and only completed with the support of practically the entire British banking sector as underwriters; and, ultimately, nationalisation.

In June, Mr Willford joined other executives in making a major personal purchase of B&B shares. After previously owning just 250, he paid £45,500 for 65,000 more at 70p each.

He’ll be counting his losses now – although, after taking home more than £700,000 in pay and benefits last year, he can afford to.

The non-executive directors

With the city poised to bay for blood in the wake of Bradford & Bingley’s collapse, an undisputable fact remains, at least on paper - the boardroom was not starved of talent.

The bank had assembled a panel of non-executive directors with enviable curricula vitae.

On the board alongside Rod Kent was deputy chairman Nicholas Cosh, also a non-executive director at Icap, the FTSE 100 interdealer broker, who joined the B&B board in 1999.

The other non-executive directors include Ian Cheshire, the chief executive of retailer Kingfisher, owner of B&Q, where he has also served as chief executive. He joined the B&B board in 2003, as did Louise Patten, a former Citigroup banker who is also chairman of property giant Brixton, a non-executive director at Marks & Spencer and an adviser to management consultancy Bain & Co.

Stephen Webster, group finance director of FTSE 100 building materials group Wolseley and a former PricewaterhouseCoopers partner, joined B&B four years ago.

The most recent recruit, Michael Buckley, is a former group chief executive of Allied Irish Banks and a non-executive director of M&T Bank Corporation, a regional US bank with more than 700 branches. He joined the British bank in July last year.

The non-executive directors were paid in aggregate about £580,000 last year - or around £320,000 stripping out payments to the chairman. In a bid to reassure investors about the plight of the bank this summer, they personally invested some of that pay in the company’s stock: Mr Kent bought 250,000 shares at 74p, paying £185,000, Ms Patten and Mr Cosh each bought 40,000 shares and Mr Buckley 34,000, with Messrs Cheshire and Webster each buying at least 7,000.

Their collective attendance rate at boardroom and key committee meetings last year was more than 90pc.

Mr Cheshire, the only non-executive director on each of the three key committees and arguably the director with the most significant outside demands, missed six of a total 21 meetings asked of him, and Ms Patten and Mr Cosh two and three of 16 and 17 meetings respectively.

But Messrs Kent, Buckley and Cox attended every boardroom and committee meeting asked of them.

Yet, history will record the board as having dropped the Bradford & Bingley ball in spectacular fashion by allowing the bank to align its interests so squarely with the fortunes of the specialist mortgage market as the property sector ballooned then burst.

For all the board’s experience, the baying is to begin in earnest regardless.